The President's Blog

Interest and Energy

President Joe Moore chatted with Congresswoman Katherine Clark recently in her district office in Medford Square.

A couple of weeks ago, I had the opportunity to talk with Congresswoman Katherine Clark, Cambridge’s U.S. representative, about a variety of higher education policy issues I’ve written about in this blog before. Our discussion was positive and fruitful, and I appreciated Congresswoman Clark’s candor in sharing her concerns that despite the increased focus at the federal level regarding the affordability of higher education, concerns about student loan debt, and abuse of the federal financial aid system by many for-profit institutions, few positive results have been achieved.

On the other hand, she confirmed my optimism that energy is mounting around the effort to extend to more people the opportunity to obtain a university education. Much of that energy comes from Massachusetts’s own congressional delegation.

U.S. Senator Elizabeth Warren — who established her consumer-protection bona fides on the national level as a special assistant to President Obama, working to implement the Consumer Financial Protection Bureau — and Clark’s 6th District colleague, Congressman John Tierney, have each put forth legislation to control the interest on student loans.

While none of the legislation has yet cleared the partisan gridlock that has soured so many Americans on politics, Congresswoman Clark reports that the fight is far from over. I believe her, even if the path to more sensible and sustainable student loan interest rates continues to be a long and arduous one. Her desire to engage one-on-one with a member of her local higher-education community indicates how seriously she views the problems facing student borrowers who are at a disadvantage under the present system.

In the commercial market you can get a loan from a bank for a mortgage, a home equity loan, a car or a boat for less than a student can borrow from the U.S. government for college. Federal student loan rates went up quietly on July 1, and are now over 4 percent for undergraduate students, over 6 percent for graduate students, and over 7 percent for parents who borrow for their kids.

It’s true that unsecured debt typically commands higher interest rates, yet student borrowers are uniquely behind the eight ball if they fail to repay their notes. The Treasury department seizes tax returns and, after a number of years, will garnish the wages of one who defaults on a student loan. Student loans are nearly unique in that they can’t be discharged in bankruptcy.

However, those who take out student loans are almost by definition those who have no other financial recourse if they want to pursue an education that can help them earn a livable wage. Lowering the interest rate on student loans is an important step in the fight to make a university education achievable for middle-income and lower-income students. It would also be more appropriate if the federal government wasn’t generating a profit on the student loan system through these higher rates in order to offset the federal deficit.

If politicians and policymakers really believe that an educated citizenry creates a more productive work force and a stronger economy, one would think that an efficient, balanced loan system would be an investment in that work force which, in turn, would generate more tax revenue through productivity and income growth.